Q.11RQ - Horngren'S Financial And Managerial Accounting

Question

Question :What is a contra account?

Step-by-Step Solution

Answer

Answer

A Contra account is an account that has the opposite normal balance as compared to a related account.

Step 1: Explanation of Contra Account

The Contra account is the opposite account of the related account. It is tied up and listed immediately below the related account in the financial statement.

Step2: Example of Contra Account

Accumulated depreciation- Building is a contra account to building account. Building account will have a debit balance. However, accumulated depreciation will have a credit balance. This contra asset account balance will be subtracted from the normal balance of building account to measure the book value of the building.